Tyco/ADT -- summary under Code s. 355 spin-offs
Current structure
Tyco is a Swiss NYSE-listed corporation limited by shares (Aktiengesellschaft). ADT is a Delaware corporation which is a wholly-owned indirect subsidiary of Tyco which was formed in order to hold the residential and small business security business in the US and Canada currently operated by Tyco (including its subsidiaries). Tyco Flow Control is also a Swiss Aktiengesellschaft and a wholly-owned subsidiary of Tyco, which was formed to hold the flow control business currently operated by Tyco (including its subsidiaries). Pentair is a Minnesota NYSE-listed manufacturing corporation with 2011 sales of $3.5 billion.
Preliminary Tyco Flow Control reorganization
Prior to the spin-off, Tyco will, (i) engage in an internal restructuring whereby we will transfer to Tyco Flow Control certain assets related to the flow control business, and Tyco Flow Control will assume from Tyco certain liabilities associated with the flow control business, (ii) increase the share capital of Tyco Flow Control by a conversion of freely available equity into nominal share capital and authorize the issuance of Tyco Flow Control common shares in a number permitting a one-to-one share exchange with the outstanding Pentair common shares and (iii) rename Tyco Flow Control "Pentair Ltd." . In addition, a subsidiary of Tyco Flow Control will issue an intercompany note to a subsidiary of Tyco in an amount not to exceed $500 million, which will be repaid at the closing of the Merger with proceeds to Tyco Flow Control from a third party financing upon terms negotiated by Pentair.
Spin-off
Each Tyco common shareholder will receive a special dividend. In particular, on the distribution date (expected to be September 28, 2012), each Tyco shareholder will receive (i) 0.5 ADT common shares for each Tyco common share owned by such holder and outstanding as of the record date for the distributions and (ii) a number of Tyco Flow Control common shares (estimated to be approximately 0.24 Tyco Control Flow common shares per Tyco common share) determined by a formula based on the number of Pentair and Tyco shares outstanding on a fully-diluted basis on the distribution date. ADT common shares are expected to trade on the NYSE.
Merger
. Following the spin-off, a wholly-owned, indirect Minnesotal subsidiary of Tyco Flow Control ("Panthro Merger Sub" - which will be a wholly-owned subsidiary of "Panthro Acquisition, a Delaware wholly-owned subsidiary of Tyco Flow Control) will merge with and into Pentair, with Pentair surviving the Merger as a wholly-owned, indirect subsidiary of Tyco Flow Control. As consideration for the Merger, shareholders of Pentair will receive one newly issued common share of Tyco Flow Control for every Pentair common share that they hold at the time of the Merger. Immediately after consummation of the Merger, on a fully-diluted basis, 52.5% of the outstanding shares of Tyco Flow Control will be held by Tyco shareholders and 47.5% will be held by the former shareholders of Pentair. After the Merger, Tyco Flow Control will be an independent, publicly-traded company that operates Tyco's flow control business and Pentair's business.
US tax consequences
Tyco has received a private letter ruling that the distribution of ADT and Tyco Flow Control will qualify as tax-free under s. 355 and/or 361 of the Code. However, the distributions may result in corporate-level gain to Tyco under Code s. 355(e) if 50% or more by vote or value of ADT common shares, Tyco Flow Control common shares or Tyco's common shares are acquired or issued as part of a plan or series of related transactions that includes the distributions. For this purposes, any acquisition or issuance of ADT's or Tyco Flow Control's common shares within two years after the distributions generally are presumed to be part of such a plan, subject to such presumption being rebutted. Although the merger might be treated as part of such a plan or series of related transactions, it is to be noted that the Pentair shareholders will acquire less than 50% of Tyco Flow Control common shares in the Merger.
A ruling has been sought that the Merger will qualify as a Code s. 368(a) reorganization and that s. 367(a)(1) will not cause the Merger to be taxable to Pentair shareholders (except for certain "five-percent transferee shareholders.")